Low-Cost E&O Insurance from OREP Working RE Home Library/Previous Editions
Will Appraiser Bond Requirement Put You out of Business? -
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Appraisers already pay more than any other professionals for their license and classes they have to take to renew their license every two years. We were not the ones who made all the bad loans and who sold property to buyers who could not afford to buy that kind of property, so why are we the ones to be penalized? Loan officers and real estate agents make a lot more than the average appraiser does. Most appraisers I know would have to go out of business if they had to pay for a bond. That would not be good for lenders, and buyers who rely on appraisers to determine if the property is worth what the buyer is paying or the lender is basing the loan amount on. This needs to be rethought.
- Steve Remillong, Horizon Appraisal Service
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Thank you for your analysis of S.2452. Here is a copy of the letter I sent to both of my California Senators.
S.2452 doesn't solve anything, it's an onerous cost designed to reward bad lenders for their dishonest tactics.
As an appraiser, I have been making the case with statistics that the market began to deflate since August 15, 2005. I have added this information to my reports and all I got for my in-depth analysis was "Customer Service Investigations” (CSI), "Grinder Reviews,” "Pre-Benching" and demotion on the assignment rotation que” (List) by some of the largest lenders in America. My personal experience is typical of the few appraisers in this area who are competent, experienced and honest.
In order to get nominated to the "List" in the first place, you have to be deemed malleable enough to be a "Good Appraiser" or “on the same Team” or “Team Player” by a manager of Loan Production. During the process of becoming a "Good Appraiser" you must make several sows ear property reports seem like silk purse reports. After becoming a "Good Appraiser" you are then put onto the "Approved" Appraiser List. The list is often "Maintained" by a separate entity called an "Appraisal Management Company" (AMC). Generally the AMC is either controlled by significant volume or is a wholly owned subsidiary of the Lender. Their ostensible function is to maintain good appraisal practices and promote conformity with the "Uniform Standards of Professional Appraisal Practices" (USPAP). In actual practice this is a sham because the Vice President of Loan Production is in charge and tells the AMC staff to promote those appraisers on the List who are still malleable enough to make his bonus bigger and better than the preceding years'.
If an appraisal doesn't hit the numbers and Loan Production Staff can't “earn” a fee they begin a systematic process of character assassination and slander against the appraiser. The tempo, stridency and level of involvement increases until they force "Customer Service Investigations" (CSIs). The Loan Production Staff considers itself to be the "Customer" of the AMC. I reiterate for emphasis; The "CSIs" are initiated when the Customer doesn't get the numbers they need to make a loan and “earn” a commission. Once I was CSI'ed because I took a picture of the posted “Condemned By the Health Department sign” and included it in the report. In another instance I was called a racist and was discriminating against Latinos. This is laughable because I served 2 years in the Peace Corps in Latin America and speak Spanish, too. In another instance I was CSI'ed because I refused to classify a vacant vermin infested structure as a vacation (second) home. (The owner had moved into a camping trailer next door.) It was at this time that my assignments began to diminish and soon culminated in complete stoppage after I refused to consider comparables in another newer neighborhood as comparable to the older property being appraised. To be honest I don't miss their business, but these are typical examples of how the Loan Production Staff/AMC's interact.
Next, as the process continues a “Grinder Review” is ordered by the AMC at the behest of the Customer. A “Grinder Review” is an in-depth appraisal review process that concentrates on finding insignificant deviations from the Customer's specifications, and which are almost always ignored when the appraisal report hits the numbers. As the process continues the "Grinder Reviews" are used by the Appraisal Management Company to document and justify the future action known as "Pre-Benching". "Pre-Benching" is the process of assigning appraisal requests which are more and more difficult to appraise and making them more and more distant. As the appraiser begins to either falter or reject assignments because of difficulty, distance, or legality the appraiser is assigned a lower number on a scale of 1- 5. which lowers his standing in the assignment rotation que. "Benching”, as defined, is not removal from the list, it is just demotion downward in the assignment rotation que, until there are no assignments of any consequence. The process is used to punish the offending appraiser who can't give them the numbers they need to make the loan and “earn” a commission.
As the process proceeds the offending appraiser is financially weakened until the appraiser is either forced to re-comply with the “conditions” or leave the business.
Under no circumstances should an appraiser ever ever try to assert independence because missed numbers, complaints about undue influence or refusal either due to legality, quality, distance or difficulty of the assignment will always initiate the CSIs, Grinder Reviews and the Pre-Benching process, again.
I hope that someone actually reads this I know it's long but it explains some of the factor that contributed to this mortgage crisis. But the most important point is simple "follow the money, not the appraiser," he's just a pawn.
- Leland Turner
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The Bonding is for what purpose? If we are required to carry E & O insurance, what is the purpose of this additional bond? This is completely over the top for appraisal issues as we are now just another link in the chain of litigation. I will not take a Bond/Loan to CYA when I have E & O insurance.
This just may be the straw that breaks the camel's back for the appraisal profession. We already are taxed on every appraisal we perform in the cities in KY.
The lender does not pay this tax, the appraisers pay the tax. To require a Bond is not within the realm of the appraisal practice. Our client is the lender in most appraisal assignments. When is the LENDER going to offer the assurance that they are worthy of a Bond? Why is it being passed onto the Appraisers?
- Kim Moore, KY certified appraiser
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If appraisers are already insured, why is this proposal being made? Is there a logical reason for it? Or is there some vested interest behind it trying to make money off of this proposal?
- Jon Corwin, Appraiser
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Then we should start charging $2,000 for each report if they want us to hold such responsibility. Our fees would need to skyrocket to match their scapegoating intentions would you agree?
- Michael Shirley R.E.A.
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The pending Congressional bill which will require a surety bond for appraising which may include commercial property appraisals would be infinitely more expensive for the commercial appraiser. Typical appraisals are in the $2 to $10 million range with major appraisals in the $10 to $500 million range. We appraise shopping centers, industrial buildings and parks, office buildings and high rises. In prior years, I averaged $250 million in appraised values. This would translate at 1% of value surety bonding to $2.5 million with a bond cost of $25,000. That amount is prohibitively expensive and cannot be passed on to clients. The average appraisal fee for fee simple single tenant industrial properties is about $2,500 and increases with complexity and size of my appraisals. I will have to quit being one of the 3100 licensed Calif. appraisers if this bond measure is approved.
As to trust appraisal work, Bank of America has instituted on-line bidding just as it has for production work (sales and refinance appraisal work). Now, trustee's will choose the lowest bidder for trusts to the probable disadvantage of the trustors. My recent work with Bank of America led to very significant discrepancies in lease rates, building sizes and building conditions from that of the property managers hired by B of A trustees to oversee their trusts. From my appraisal work, required repairs and future lease rates could be taken to market for the benefit of the trustors (mostly family trusts). It is very unfortunate that families whose properties are being managed by trustees seek only the cheapest appraisers result in lack of management oversight and reduced family income as a result. (One recent tenant threatened to vacate when the lease expired-the roof was pending collapse after 30 years which I verified upon inspection, the food production factory humidity only exacerbated the roof failure with additional warpage of the plywood sheathing).
- Appraiser, Chatsworth, CA
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Maybe this is what the Appraisal Industry needs. We're responsible and honest and turn just as much work down as we take in. Why, because we chose not to get involved in certain situations. The current housing has enough guilt to go around. Starting with Greenspan's gross negligence and encouragement for Lenders to "come up with different products" (ie. adjustable rate mortgages for one), 0% Down, No Document Loans to name a few more. Lender pressure on appraisers to "get" the value to "close the deal" and continue getting work.
We're a husband/wife team and have not resorted to any of those practices, thus we've seen our business decline steadily over the past 4 years. Perhaps S.2452 will keep appraisers honest and only honest appraisers will be able to be bonded. Like some homeowner's and auto insurance companies rate customers on their credit worthiness.
Yes, there is a final straw. We can't allow the system to continue to allow anyone with a heartbeat to appraise. It will weed out a lot of bad apples. As far as an added cost to the appraiser, why assume the appraiser has to pick up the tab for the consumer. This should be added to the cost to the borrower; after all, they're benefiting from it. The fee structure in our industry has long been ill thought out. Whoever thought that "one" price fits all 1004's etc. Furthermore, the AMC fees should also get tacked onto the "greedy" consumer. Why does the appraiser have to take the hit? The entire pricing structure has been thought out by people who are not business minded.
I guess our profession is just that unprofessional. Perhaps this will restore some semblance of professionalism.
- Frustrated Appraisers
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Loved the article on appraiser bonding even though it is a ridiculous idea. It definitely confirms that our lawmakers are unable to think clearly and at a minimum, are seriously deprived of the information they need to make informed decisions regarding these issues. Why not just change USPAP verbiage to read that “the appraiser's opinion is also the appraiser's guarantee of continued value throughout the life of the loan and if for any reason the homeowner is unable or decides not to pay his mortgage, the appraiser will step in and pay it for him”?
Will we be responsible for the mortgage company's mishandling of foreclosed properties and share in those losses also? I appraised an REO property about six months ago and determined the local market to be "currently in a state of decline." So what do you think the mortgage company did? They waited six months to market the property and called me to complain that they were told by a local broker that my opinion was too high. Since they didn't like the idea of purchasing a new opinion, I explained that all they needed to do was calculate the amount of decline based on the rate in the report and the amount of time that has passed and they will have my new opinion.
- Craig Villa, Beachwood, NJ
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I have very little knowledge regarding bonds, but what a bonding company told me was that in addition to the annual cost of the bond, and this is the backbreaking part, is that to issue the bond the appraisal company would have to have twice the liquid assets to cover the bond. As you stated this is not an insurance policy but a credit policy where the bonding company will want to be repaid for expenditures.
- Craig J. Handyside, Greensboro, NC
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You mention that appraisers are getting are backs broke, over and over again. My question is why are we letting AMC companies and politicians and lenders run all over us? Without us what would they do.
I had it with high gas prices digging into profits plus rising other costs and on top of that aggravation being bossed around by everyone that comes down the pike.
Seems the one option I have left, being a self-employed hard working man with 30 years experience is to tell everyone telling me what to do and reaching into my pockets for my hard earned money is to tell them all that I quit. I do a professional job and I put out an excellent product, not an easy task and not for people who don't possess high end skills in all aspects, not just appraising experience but also people skills and computer technology skills.
I started into business to be my own boss and to take control of my own livelihood and NOW it has been out of my control, and the one most important quality an appraiser strives on is being in control or he can not be a good appraiser or is not a good appraiser. Correct?
So please tell me why appraisers are letting themselves be pushed around, like we don't deserve respect. The way I see it appraisers do the hard back breaking work and the AMC and lenders get the easy big dollars, we get the scraps and they are telling us we are going to get less scraps and we should be glad for it. What do you think?
Oh yea, one more item. I forgot to mention I am burned out just reading all the emails form lenders and AMCs about all the new changes that are taking place within their organizations and what they expect of me because of it. Not to mention most have their own sites and all are different and need to be learned and studied, not to mention many times the site is new and does not work properly and has bugs it needs to work out of it. I already spent 2-3 days trying to get a password to work with a lenders site so I can view an order. After many calls back and forth I never was able to have the lender's techs be able to reset my password. These aggravations that are suppose to be good for everyone takes up as much time, if not more time, as my doing my reports. Leave me alone let me do my work and pay me a respectable fee and appreciate the work I do for you. Stop asking for more and more from me and asking me to get paid less and less. It just does not add up or make any sense.
Are we appraisers a bunch of wooshes or just too busy and beat up to fight? Like the frog dropped in the water and the heat was slowly turned up until he was unaware that he was cooked. Hey appraisers out there lets get out of the water or at least let us turn the heat off some. Almost sounds funny, but it is not, and shame on you for snickering because believe it or not it brought a snicker to my face.
- Larry Fenimore, PA